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Is Fiscal Cliff Really The Problem With This Market ?

The market rallied from its June low on hopes the Fed would provide another round of quantitative easing. It turned out to be a classic case of buy on the rumor sell on the fact.

There was an additional spike-up for a couple of days when the Fed did come through with QE3 in September. But the market then immediately topped out.

Supposedly it was worried about the election, with the popular opinion being that if the Democrats were re-elected it would be bad for the economy and markets. But that seems to have been a case of sell on the rumor, buy on the fact. The market has been rallying since the election.

But is the rally already ending, with fear of the fiscal cliff taking over as the next problem?

Perhaps. But I continue to think the negotiations on the fiscal cliff are proceeding about as should be expected, and will succeed.

We’ve had the initial wildly opposite general claims prior to talks beginning. We’ve had the initial general suggestions, which amounted to both sides being unwilling to give anything to the other side.

And now we’ve had both sides present their first actual proposals. Treasury Secretary Geithner presented the White House plan over the weekend, which Republican leader Boehner rejected, saying the Democrats couldn’t possibly be serious in making such an offer.

And yesterday, we had Republicans present their first offer, which overall approximately matches the White House’s $4 trillion tax and spend program. But under the Republican proposal, taxes would increase by $800 billion, about half of the White House proposal, and it would include $600 billion in savings from Medicare and other health programs, more than the $400 billion proposed by the White House.

Both sides rejected the initial proposals as would be expected, expressing disappointment that progress is not being made, and blaming the other side if the economy goes over the cliff, continuing to try to sway public support.

But now specific proposals are on the table from which each side can begin to slowly give ground over coming weeks to meet in the middle in an agreement.

It looks to me like the normal snail-like progress seen in the early stages of any negotiations.

But is the market’s new problem actually something beyond the fiscal cliff, like maybe the economy again?

Subscribers to Street Smart Report: There is an in-depth ‘Gold, Bonds, Dollar, Commodities’ update from yesterday in your secure area of theStreet Smart Report website.There will be an in-depth ‘Markets Signals and Recommendations’ there tomorrow!

About The Author

Sy Harding publishes the financial website www.StreetSmartReport.com and a free daily Internet blog at www.SyHardingblog.com. In 1999 he authored Riding The Bear – How To Prosper In the Coming Bear Market. His latest book is Beat the Market the Easy Way! – Proven Seasonal Strategies Double Market’s Performance!